SUBJECT:  2003-04 Budget Request

For your information, the following is the official news release from the Office of the President regarding the Regents approved 2003-04 budget proposal.

If you have any questions concerning this notice, please contact Dawn Buttrell at 534-3482.

                                                Margaret F. Pryatel
                                                Assistant Vice Chancellor

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FOR IMMEDIATE RELEASE

Thursday, Nov. 14, 2002
Brad Hayward (510) 987-9200
brad.hayward@ucop.edu

REGENTS APPROVE BASIC BUDGET REQUEST FOR 2003-04;
CUTS REMAIN LIKELY BUT AWAIT FURTHER INFORMATION FROM STATE

The University of California Board of Regents approved a basic budget for the 2003-04 fiscal year today (Thursday, Nov. 14), requesting state funding that fulfills the Partnership Agreement with Gov. Gray Davis but also acknowledging that significant budget cuts ultimately may be required.

A steep reduction in state revenues, due largely to a drop-off in capital gains and stock options as a result of the stock market decline, has left the state with a major fiscal challenge. The 2002-03 state budget authorizes the governor to make $750 million in reductions to state operations in the current fiscal year; those cuts have not yet been announced. In addition, for the longer term, the state is estimated to be facing a deficit of at least $10 billion each year, absent corrective action.

Specific proposals from the state for balancing the budget may not be available until the governor releases his 2003-04 budget proposal in January. Therefore, the regents discussed general categories of options available to the university as it seeks to fulfill its mission to the state while coping with a potentially significant reduction of resources.

"I have great confidence in the long-term economic vitality of California and, therefore, in the university's long-term fiscal prospects," said UC President Richard C. Atkinson. "However, we face a very challenging short-term budget situation.

"In this constrained budget environment, I have two priorities. First, we must maintain quality and access in the core instructional programs. That means funding for enrollment growth and funding to maintain the high-quality educational experience that students expect of UC. Second, we must provide salary increases for faculty and staff so that we do not fall further behind the market. Competitive salaries are key to quality -- we must prevent further salary erosion and also begin to close the salary gap."

Larry Hershman, UC vice president for budget, said that over the longer term, the university will continue to seek full funding of the partnership, an agreement between UC and the Davis administration that calls for specific annual increases in funding for the university, coupled with a commitment by UC to make progress on a number of specific accountability measures.

For the shorter term, Hershman outlined for the regents a series of options available to the university in a budget-cutting environment. No decisions will be made until more information about the state's budget priorities is known. The options include (not in priority order):

- Delay restoration of partnership funding that has been reduced for instructional equipment, instructional technology, libraries and building maintenance.

- Delay implementation of state funding for summer instruction at some or all of the four remaining campuses.

- Restore student fees to the level that existed prior to the 10 percent undergraduate fee reduction of the late 1990s.

- Consistent with the university's interest in a long-term fee policy, implement student fee increases for undergraduate, graduate and professional school students, providing sufficient financial aid to preserve access to the university.

- Reduce funding for support programs, such as administration and student services, recognizing the need to provide adequate support for core teaching, research and public service programs.

- Reduce funding for public service programs, such as outreach and Cooperative Extension, taking into consideration university and state priorities.

- Reduce funding for research, limiting such cuts to programs that received major increases over the last several years -- and protecting from further cuts those research programs that were reduced 20 percent in the early 1990s and another 10 percent in 2002-03.

"None of these options is attractive," Hershman said. "We are going to work very hard in Sacramento to make the case for the university's budget priorities and minimize the need for cuts. But given the seriousness of the state's fiscal challenge, we also need to consider carefully how the university might best absorb a budget reduction while maintaining the standards of quality that have always defined UC."

Hershman emphasized that, if a student fee increase is required, one-third of the revenue from the increase would be returned to financial aid in order to mitigate the impact on lower-income students, and Cal Grants would also help reduce the impact. He noted that mandatory systemwide student fees have not increased in eight years -- they actually fell 10 percent in the late 1990s for resident undergraduates -- and that the university's fees are now substantially below those of its comparison institutions. However, the regents will not be asked to make any decisions on student fees until a future meeting.

In the absence of firm information from the state about the extent of budget cutting that will be required, the budget adopted by the regents requests the basic level of partnership funding.

The budget requests state funding for enrollment growth of 8,000 students in 2003-04, a figure that includes the "overenrollment" of at least 4,000 students in the current year (enrolled students for whom the state is not providing funding). UC is in the midst of a major enrollment expansion driven by growth in California's college-age population.

The regents' budget also requests funding for an average 4.5 percent salary increase for eligible faculty and staff, along with funding for merit increases for eligible employees. All salary increases are subject to collective bargaining requirements, where applicable. Faculty salaries currently trail those of UC's comparison institutions by approximately 7.5 percent, and budget reductions over the last decade have left UC staff salaries similarly behind what the university had hoped to provide. (Separately, the regents approved a one-time Capital Accumulation Provision credit for eligible UC employees -- a form of deferred compensation provided through the UC Retirement Plan to help make up for lower-than-expected salary increases this year.)

The budget also includes a student fee increase of 6.5 percent (approximately $225 over the course of a full year for resident undergraduates) unless the state is able to provide equivalent funding under the partnership. The increase would apply to both mandatory systemwide fees and professional school fees. Hershman noted that the 6.5 percent figure is only a planning figure at present and that the final figure may well differ based on the state's budget plans.

Also included in the plan is a 4 percent increase in nonresident tuition -- a $500 increase for nonresident undergraduates and a $445 increase for nonresident graduate students. Nonresident tuition is established consistent with state policy that calls for out-of-state charges to be set by considering the cost of instruction and the fees charged by UC's public comparison institutions.

The university's current state-funded operating budget is approximately $3.15 billion.

The regents also approved a $316 million capital improvements budget for 2003-04 that would fund a number of projects throughout the UC system to retrofit buildings against earthquakes, construct new facilities for enrollment growth and modernize outdated infrastructure. State funding for these projects will be provided by Proposition 47, a statewide general-obligation bond measure for public education facilities that was approved by California voters on Nov. 5.